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The U.S. was once the envy of the payments industry, but has now fallen significantly behind much of the rest of the world. Most innovation now occurs outside the U.S. and is increasingly a result of efforts by public policy-makers who insist on better security or by tech companies challenging bankers for market share.

Examples include:

The equivalent of real-time ACH in Great Britain

Chatbots in China

Mobile P to P in Kenya

T-Money in South Korea

Voice recognition in the UK and Netherlands; Amazon Alexa globally

RuPay in India

Chip & PIN in most of the industrialized world (while we settle for a less secure, watered-down version of EMV in the US that still relies upon worthless signatures).

Meanwhile, the U.S. has become the Dead Sea of payments with dominant banks focused on circling the wagons within payment schemes that support supra-competitive fees, ensure survival of the weakest and thwart competition between scheme-members. Banks have little motive to innovate, disrupt or compete with other banks since the risks outweigh the benefits of keeping the old payment systems intact.

Instead, banks in the U.S. have created payment schemes in which they have aligned on prices and services and marketed their services under common brands. These schemes effectively shield members or their primary customers (the banks) from competition by setting default prices to merchants.

Unfortunately for U.S. merchants and their customers, U.S. banks charge the highest fees for card payments in the world. Bank fees, including interchange, translate into higher costs to merchants which merchants inevitably pass along to their customers, even those who receive public aid. Bank management and bank shareholders are delighted and content with the status quo.

Fortunately, many people outside the banking industry have begun to recognize and address the sad state of domestic payments. One public official characterized the U.S. as having a “disco-era payments system” and the Federal Reserve has started to address the problem by conducting cross-industry efforts focused on bringing U.S. payments up-to-date with the rest of the world.

Market developments also threaten disruption of the existing payments paradigm. Mega-banks like Chase with a global presence and a desire to focus primarily on promoting their own brands over scheme brands have recognized the need to work with individual merchants to develop products for mobile commerce since they want their payment products to gain top-of-wallet presence. No doubt, some of them chafe at the tendencies of the bank schemes to homogenize payments which often fall short of technical excellence but prop-up the weakest banks in the scheme (the lowest common denominator effect).

Card payment schemes born in the U.S. have run into opposition by public policy-makers and regulators outside this country who are not interested in replicating the U.S. card payment environment.

Change will likely come slowly since disruption of the status quo threatens banks’ short-term profitability and the very existence of weaker members of the bank establishment. Change can be accelerated by denying those schemes exclusively owned and operated by big banks to effectively own or control a greater share of our domestic payments. Merchants can help by getting more involved in payments by participating in the open forums sponsored by the Federal Reserve and others seeking to address the inadequacies in U.S. payments.